RRSP deadline fast approaching: What you should know

Credit to Author: Canadian Immigrant| Date: Wed, 23 Feb 2022 21:31:44 +0000

Saving for retirement may be a new concept to you, as it is for many immigrants, but it’s an important one to learn about now that you’re living in Canada.  RRSP or Registered Retirement Savings Plan is a unique financial tool lets you put money away for your retirement while taking advantage of immediate tax benefits.

Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan. Income growth without having to pay taxes immediately isn’t the only benefit to investing in an RRSP; contributions to your plan are tax deductible, meaning they reduce your current taxable income for the year. This allows you to pay less income tax or even get a refund back.

Contribution deadline and deduction limit

In order to receive the benefits for the 2021 tax year, you must make a contribution to your RRSP before the March 1, 2022, deadline. There is, however, a limit to how much you can contribute annually.

For 2021, the limit is the lower of 18 per cent of your earned income for the previous year or $27,830 (an amount set annually by the Canada Revenue Agency). However, if you did not use all the RRSP contribution limit for previous years, you can carry forward the unused amount to 2021.

Making withdrawals

The main purpose of an RRSP is to help save for your retirement. But the government also allows you to use those funds for other important life goals such as buying a home or for the post-secondary education of you or your spouse. There are two programs you can use to take money out of an RRSP plan without incurring tax. They are the Home Buyers’ Plan (HBP) and the Lifelong Learning Plan (LLP).

With the HBP you can take up to $35,000 out of your RRSP to put towards the down payment on your first home and you won’t be taxed on it. But you’ll have to pay it back into your RRSP over the next 15 years.

In the case of the Lifelong Learning Plan, you can  withdraw up to $10,000 a year to help pay for your or your spouse’s education. You can’t use it for your children’s education. All you have to do is repay at least 10% per year for up to 10 years.

There are different types of RRSPs (Individual, Spousal, Group and Self-directed). Contact your financial institution to learn more about what plan suits your needs and for details on how you can use RRSPs to plan for retirement, education or buying a home.

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